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Japan May Sell U.S. Treasuries After Quake, Brown Brothers Says

March 14 (Bloomberg) -- Japan may sell some of its foreign holdings, including U.S. debt, to finance increased spending after the country’s strongest earthquake left millions without electricity or water, according to Brown Brothers Harriman & Co.

“The scope for, again, massive fiscal spending, seems to be there,” Win Thin, the firm’s head of emerging-markets strategy at Brown Brothers in New York, said in a Bloomberg radio interview on “Bloomberg Surveillance” with Ken Prewitt. “If they have to raise these funds domestically, they may have to sell some of their holdings elsewhere.”

The Bank of Japan poured a record 15 trillion yen ($183 billion) today into the financial system of the world’s third-largest economy and doubled the size of its asset-purchase program. The earthquake and a tsunami may have killed 10,000 people in Miyagi prefecture, local police said. BOJ Governor Masaaki Shirakawa, speaking at a news conference in Tokyo, pledged more cash as needed.

Japan’s holdings of the world’s foreign-reserve assets rank second behind China’s, accounting for 11 percent. Japan owned $882 billion in Treasuries as of December, nearly one-fifth of the outstanding U.S. debt held by foreigners, according to Treasury Department data.

The yen appreciated 0.2 percent to 81.67 per dollar today in New York. It surged as much as 1.6 percent on March 11, the biggest gain since August, amid speculation demand for the currency may increase as insurance companies and lenders use it to rebuild.

Thin said the yen would not strengthen as it did after the 6.9 magnitude Kobe earthquake in January 1995, which claimed more than 6,000 lives. The currency gained about 20 percent versus the dollar in the three months after the temblor.

“That was the thinking behind the initial strength,” Thin said. “Calls for massive yen strength right now, I don’t really see the factors behind it.”

To contact the reporters on this story: Charles Mead in New York at cmead8@bloomberg.net; Ken Prewitt in New York at kprewitt@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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